Pay back in 50 years

Just read about news that a home loan with 50 years loan period was recently made available. My first reaction: sounds like a practical way to tackle rising housing prices to me. Though one may claim that a longer loan period will mean paying more interest, i’m sure people who take up such a loan wouldn’t mind – being able to “own” (the bank owns it while under mortgage) a house at all probably matters more to them. Come to think of it, it could result in a win-win-win-win situation, whereby some people can now service a home loan more comfortably, the bank gets more sign-ups for home loan, the government earns more tax with more people buying properties, and property speculators continue to stay elated over appreciating property prices.

I always remember what a friend tells me: let inflation take care of the paying back of a home loan. In other words, the longer the loan period, the better, since, over time, the money that’s paid to service the home loan is worth less (still remember that not too long ago a cup of coffee from a coffee shop costs 60 cents, but now a dollar?). People are getting more used to the “cash flow” model of handling their cash – as long as your income covers your expenses, you’re good, nevermind about rushing to fully pay up a loan, which was the general mentality of my father’s generation. In a way, there is no choice, since housing prices are almost beyond reach to many and they can only hope for earning enough just to be able to service a loan.

The CPF withdrawal limit comes to mind when considering a loan with 50 years loan period. There is a real danger of hitting the withdrawal limit way before the end of the loan period and you will suddenly have to service the loan in cash. Then again, my guess is that the person who actually takes up a 50 years loan will not be bothered.

Final thought, i’m surprised to find out that the loan period is actually not regulated when all along i thought it was.

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